## Facts

- Plymouth Savings Bank extended credit to Shirley Dionne, who operated Greenlawn Nursing Home, and filed a Massachusetts financing statement before extending credit.
- Dionne executed an $85,000 promissory note granting the Bank a security interest in essentially all tangible and intangible personal property, including proceeds, general intangibles, receivables, and contract rights, including after-acquired property.
- Dionne defaulted, leaving approximately $65,465 unpaid.
- Dionne failed to pay federal employment (FICA) taxes; the IRS assessed liability and filed federal tax liens on December 19, 1994, and February 15, 1995.
- On March 31, 1995, Dionne contracted with Jordan Hospital to assist it in obtaining a nursing home license; the Hospital owed Dionne a final payment of $75,000.
- The Bank sued the Hospital in state court for the $75,000 based on its security interest; the Hospital deposited the funds with the court due to competing claims.
- The Bank filed a declaratory judgment action against the IRS (and Massachusetts tax authorities) to determine lien priority over the $75,000; the action was removed to federal court.

## Issues

1. Whether the Bank’s previously perfected security interest in Dionne’s receivables and contract rights had priority over properly filed federal tax liens as to the $75,000 Hospital payment.
2. Whether 26 U.S.C. § 6323(c)’s 45-day rule barred the Bank’s priority because Dionne’s contract performance and the specific receivable arose after the lien filings.

## Decision

- The First Circuit reversed the district court’s summary judgment for the IRS.
- The court held the Bank’s security interest could qualify as a protected commercial financing security interest under 26 U.S.C. § 6323(c).
- The court rejected the district court’s view that the Bank’s lien could not be protected unless the specific receivable “attached” through contract performance within 45 days of the federal tax lien filing.
- The case was remanded for further proceedings consistent with recognizing potential Bank priority to the $75,000 deposit.

## Legal Principles

- A federal tax lien under 26 U.S.C. § 6321 attaches to all of a taxpayer’s property and rights to property, but priority disputes are governed by 26 U.S.C. § 6323.
- Under 26 U.S.C. § 6323(c), certain perfected commercial financing security interests can take priority over a filed federal tax lien for collateral including proceeds and receivables, subject to statutory timing and scope limits (including a 45-day limitation).
- A properly perfected “floating lien” in present and future receivables and contract rights may fall within § 6323(c)’s protection; the statute must be applied in a way that preserves the intended protection for secured commercial lending in after-acquired receivables.

## Conclusion

The First Circuit held that a lender with a preexisting perfected security interest in a borrower’s receivables and contract rights may have priority to a later-arising receivable over the IRS’s filed tax liens under § 6323(c), and it remanded for further proceedings to determine entitlement to the $75,000 fund.


Plymouth Sav. Bank v. United States I.R.S., 187 F.3d 203 (1st Cir. 1999)